Citations
- 57 F. Supp. 3d 950
Full opinion text
MEMORANDUM OPINION AND ORDER ON DEFENDANTS’ MOTION TO DISMISS
JOHN R. TUNHEIM, District Judge.
Investor Plaintiffs bring this consolidated class action alleging that various defendants—Medtronic, certain of its current and former officers and executives and paid consultants (collectively, “Defendants”)—issued false and misleading statements and engaged in a scheme to mislead investors regarding Medtronic’s, financial condition, particularly with respect to the safety and efficacy of its product INFUSE. Plaintiffs allege that studies initially demonstrating the safety and efficacy of INFUSE were shown to be inaccurate by new studies published in a medical journal called The Spine Journal in May and June 2011, which revealed that the incidence of adverse events experienced with its use was between ten and fifty times the rates previously published. Plaintiffs allege that Medtronic, together with physician consultants, engaged in a scheme to defraud investors by manipulating the early studies. Plaintiffs also allege that once the new, accurate studies were published, certain Defendants made false statements defending the reliability of the early studies. Plaintiffs allege that as a result of the scheme to defraud and misleading statements, Medtronic’s stock traded at artificially inflated prices during the Class Period, but then dropped almost twenty-five percent from its high point during the Class Period when the truth was revealed.
Plaintiffs bring Count I for violation of Section 10(b) of the Securities and Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 783(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5(b), through false and misleading statements against Medtronic, several of its executives, and a physician consultant named Dr. Thomas Zdeblick. They also bring Count II for a scheme and course of conduct intended to mislead in violation of Section 10(b) and Rule 10b-5 against all Defendants—including two additional physician consultants—and Count III for violation of Section 20(a) of the Exchange Act as control persons against Medtronic and the individual Medtronic executives.
Defendants move to dismiss all of Plaintiffs’ claims. The Court will grant the motion in part and deny the motion in part. With respect to Count I, the Court concludes that Plaintiffs fail to allege that Defendants made materially false statements, with the exception of Defendant' William Hawkins’ statements regarding ongoing work with the FDA. With regard to Count II, the Court concludes that Plaintiffs’ claims against the physician Consultant Defendants are barred by the statute of limitations, but will deny the motion with respect to Count II against the Medtronic Defendants. Because Count III for control person liability is derivative of other violations of the Exchange Act and the Court permits some claims to proceed against Medtronic and its officers, the Court will deny the motion with respect to Count III.
BACKGROUND
I. BRIEF BACKGROUND OF INFUSE
Before reciting Plaintiffs’ specific allegations, the Court will first provide an overview of INFUSE and Plaintiffs’ allegations. Medtronic developed the INFUSE bone graft as part of its spinal therapies. (Consolidated Class Action Compl. (“Compl.”) ¶ 7, Nov. 4, 2013, Docket No. 28.) . INFUSE is the “trade name of rhBMP-2,” which is a bone morphogenetic protein (“BMP”) which induces the body to develop new bone tissue. (Id.) INFUSE is an alternative to grafting replacement bone tissue and was the first BMP to reach the market. (Id.) INFUSE was approved by the FDA in July 2002 for the treatment of degenerative disc disease, but Plaintiffs allege that its “approval indication was narrow: it was to be used only in single-level fusions, only between L4 and SI ... and only via an anterior approach.” (Id. ¶ 8 (emphasis in original).) INFUSE was later also approved for dental surgery and for the repair of certain shin fractures, but Plaintiffs allege that it has “never been approved for any spinal fusion indication other thán [the lower back] surgeries.” (Id.) INFUSE is part of Medtronic’s “spinal segment,” which generated more than $3.5 billion in revenue in 2008, 2009, and 2010, which was approximately 22-23% of the company’s revenue in those years. (Id. ¶ 20.)
Plaintiffs allege that it was Medtronic’s goal to have INFUSE entirely replace iliac crest bone grafting (“ICBG”) as the standard of care in spinal fusion, but that in order for that to happen it would need to have clinical studies documenting its safety and efficacy, including that INFUSE achieved better results with fewer adverse side effects for patients than traditional grafting techniques. (Id. ¶ 9.) Such clinical studies—their development and Medtronic’s response when their validity was challenged—are at the heart of this dispute.
In addition to INFUSE, Plaintiffs allege that Medtronic also “concealed known risks” associated with a second-generation BMP called AMPLIFY. (Id. ¶ 22.) AMPLIFY involved the same bone-growth-inducing protein as INFUSE, but in a higher dosage—40mg, whereas INFUSE’s maximum was 12mg. (Id.) Some of Plaintiffs’ allegations involve Medtronic’s response when questions about AMPLIFY’s safety were raised during its review by the FDA. AMPLIFY has not been approved by the FDA.
Plaintiffs make two substantive claims. First, Plaintiffs allege that Defendants made materially false statements during the Class Period in order to assure investors of the continued viability of INFUSE as a product and the prospect of AMPLIFY. Plaintiffs allege that these materially false statements artificially inflated Med-tronic’s stock price, which led investors to buy it, but that when the truth was revealed the value dropped. Second, Plaintiffs allege that before and during the Class Period, Defendants engaged in a scheme or course of conduct to manipulate the early clinical studies, which propelled INFUSE to success despite omitting many of INFUSE’s adverse effects. Plaintiffs’ claim for control person liability is derivative of these first two claims.
II. THE PARTIES
The lead Plaintiffs in this consolidated class action are several institutional investors: West Virginia Pipe Trades Health & Welfare Fund, Union Asset Management Holding AG, and Employees’ Retirement System of the State of Hawaii, all of which allege that they purchased Medtronic common stock during the Class Period and were damaged by the conduct alleged in the complaint. (Id. ¶¶ 43-45.)
Plaintiffs bring this action against Med-tronic and several of its officers and employees, including: William Hawkins, former Chair of the Board of Directors and CEO, (id. ¶ 47); Gary Ellis, Chief Financial Officer, (id. ¶ 48); Richard Kuntz, Chief Scientific, Clinical and Regulatory Officer, (id. ¶ 49); Julie Bearcroft, Director of Technology Management in Med-tronic’s Biologies Marketing Department, (id. ¶ 50); Richard Treharne, Senior Vice President of Clinical and Regulatory Affairs, (id. ¶ 51); and Martin Yahiro, Med-tronic Senior Director of Regulatory Affairs, (id. ¶ 52). The Court refers to the individual Medtronic Defendants as the “Individual Defendants” and the collection of the Individual Defendants plus Med-tronic as the “Medtronic Defendants.”
The complaint also alleges violations by three consultants (the “Consultant Defendants” or “physician consultants”). Dr. Thomas Zdeblick was a physician consultant for Medtronic, whom Plaintiffs allege authored some of the medicql journal articles with false and misleading statements, and was the Editor-in-Chief of the Journal of Spine Disorders. (7&¶ 53.) Dr. Kenneth Burkus was a physician consultant for Medtronic, whom Plaintiffs allege authored some of the medical journal articles with false and misleading statements. (IdA 54.) Dr. Scott Boden was a physician consultant for Medtronic, whom Plaintiffs allege authored some of the medical journal articles with false and misleading statements. (Id-¶ 55.)
Plaintiffs bring Count I for false and misleading statements in violation of section 10(b) and 10b-5 against only Medtronic, Hawkins, Ellis, Kuntz, and consultant Zdeblick. Plaintiffs bring Count II for scheme liability under 10(b) against all Defendants, and Count III for control person liability against only the Medtronic Defendants.
III. FALSE AND MISLEADING STATEMENTS
In. Count I, Plaintiffs allege that the Medtronic Defendants and Zdeblick violated Section 10(b) and Rule 10b-5 by making statements which were knowingly or recklessly false and materially misleading.
A. The Statements
Plaintiffs point to three distinct statements or categories of statements in support of their claims under Count I for false and misleading statements.
1. Commentary on Clinical Studies in 10-Qs
First, Plaintiffs allege that the September 8, 2010 and December 8, 2010 10-Q forms “included substantially identical false Sarbanes Oxley certifications of both Defendants Hawkins and Ellis” which stated, among other things, that Medtronic’s “clinical studies were well-planned and designed to show both the efficacy and safety of its therapies.” (Id. ¶¶ 71-72.) Plaintiffs also point to Medtronic’s March 9, 2011 filing of its third quarter 2011 (“3Q11”) 10-Q, which they allege “again falsely stated that the Company’s ‘well-planned studies’. showed the safety and efficacy of its products and therapies.” (Id. ¶ 78.) The complaint quotes from the disclosure: “We work to improve patient access through well-planned studies which show the safety, efficacy, and cost-effectiveness of our therapies, and our alliances with patients, clinicians, regulators, and reimbursement agencies.” (Id. (emphasis omitted).) According to Plaintiffs, this was the first time that Medtronic disclosed that it had received a non-approval letter from the FDA about AMPLIFY. (Id. ¶ 79.)
Plaintiffs allege that the 3Q11 10-Q “caused the Company’s stock price to decline from a close of $39.80 on March 9, 2011, to a close of $38.63 on March 10, 2011.” (Id. ¶ 82.) Plaintiffs include in their allegations commentary from various news outlets about the impact of AMPLIFY on Medtronic’s stock and the viability of INFUSE, including a New York Times article from April 11, 2011. (Id. ¶ 83.) Later, on May 24, 2011, Medtronic issued a press release announcing its fourth quarter 2011 and fiscal year 2011 financial results and later that day held a conference call, during which Plaintiffs allege that Medtronic, “specifically, Ellis, falsely stated that [Medtronic] set high standards for quality in the industry.” (Id. ¶ 85.)
2. Interactions and Status with the FDA
Second, Plaintiffs allege that on February 22, 2011, after releasing Medtronic’s 3Q11 financial results, Medtronic hosted a conference call for analysts and investors during which Hawkins was asked about whether the FDA might delay its approval of AMPLIFY and whether any delay might negatively impact INFUSE sales. (Id. ¶ 73.) Plaintiffs allege that Hawkins’ responses “falsely suggested that approva-bility had not yet been determined, and ... that even if there were a delay, it would not impact [ Medtronic]’s current business.” (Id.) Plaintiffs point specifically to the following exchange:
[HAWKINS:] [W]e are continuing to work with the FDA to figure out kind of where they are on this.... So as we learn more, we will let you know.... [If] there was a reason for the FDA to delay this anymore, it is not going to have a significant impact. It won’t have any really impact on our current business. It is really all upside for us.
[ANALYST:] [J]ust to clarify that, Bill. You don’t feel that not having—like pos- • terior lumbar fusion is probably the biggest off-label to use of INFUSE. And you don’t think not getting AMPLIFY approved could result in a retrenchment.
[HAWKINS:] No.... I don’t see anything that would change as the result of AMPLIFY not getting approved.
(Id. (emphasis omitted).) Plaintiffs allege that this statement was “knowingly materially false and misleading because ... [Medtronic] had received a letter from the FDA before January 28, 2011, stating that AMPLIFY would not be approved.” (Id. ¶ 74.) Later in the complaint, Plaintiffs explain that in Medtronic’s 3Q11 10-Q, it “disclosed for the first time that ... it had received a non-approval letter from the FDA concerning AMPLIFY: In the third quarter of fiscal year 2011, the FDA sent Medtronic a letter advising that they were not able to approve AMPLIFY at that time without-additional information from Medtronic.” (Id. ¶ 79.)
3. Statements about Correlation with Retrograde Ejaculation
Plaintiffs allege that the truth about INFUSE began to be revealed when, on May 25, 2011, The Spine Journal published a retrospective data analysis of spinal fusion patients over a period of three years, which demonstrated that there was a 7.2% incidence of retrograde ejaculation in INFUSE patients, compared with .6% incidence in patients who did not receive INFUSE. (Id. ¶¶ 89-90.) Plaintiffs allege that other articles published around that time, including another published by The Spine Journal and that Bloomberg and The New York Times, also reported on these studies. (Id. ¶¶ 91-92.)
Plaintiffs allege that even after these reports began to surface, Defendants continued to make material misrepresentations covering up the scheme and earlier research’s understatement of the link with retrograde ejaculation. They point to a May 25, 2011 New York Times article which included a response to The Spine Journal article from Zdebliek, in which he stated that the study “was of limited value because it reflected the results of a retrospective look at patients rather than a clinical trial,” that “[s]uch reports ‘are notorious for being misleading,’ ” and stating that Defendant Zdebliek had “adamantly insisted that ... financial relationships have not affected [his] scientific judgment.” (Id. ¶ 93 (emphasis omitted).)
Plaintiffs allege that after the May 25, 2011 articles, Medtronic’s stock dropped from $40.88 on May 24, 2011 to $40.23 on May 25, 2011. (Id. ¶ 95.) Plaintiffs allege that at this time, “Medtronic admitted that it knew of the infertility risks in the original studies but falsely claimed they were not statistically significant,” pointing to a Star Tribune article in which a Medtronic spokesperson said that the original study that supported FDA approval of INFUSE did not indicate sterility problems “common enough to be statistically linked to the product.” (Id. ¶ 96.) The Star Tribune also reported Zdeblick’s response to the reports, reporting that he stated in an email that the new study was “interesting, but a single publication in the medical literature does not constitute a truth. Retrospective trials are notorious for being misleading,” and that the study has “numerous flaws” but that the study’s findings were nonetheless “in line with other INFUSE studies.” (Id. ¶ 97 (alterations and intérnal quotations omitted).)
Plaintiffs allege that Defendants knew that this commentary—from both Med-tronic and Zdebliek—on the new study was false because a report from an investigation by the United States Senate showed that “Medtronic and Zdebliek knew as early as 2001 that retrograde ejaculation rates were higher in both investigational groups (i.e., INFUSE patients) than the control group,” pointing to a 2001 PowerPoint presentation Zdeblick made to study investigators in February 2001, in which Zde-blick reported that there were rates of 10.3% and 6.3% of retrograde ejaculation in INFUSE patients as opposed to 1.5% for the control group, which Zdeblick labeled as “statistically different from control.” (Id. ¶ 99.) Plaintiffs allege that Zdeblick later admitted that this finding “should have been mentioned in [Medtron-icj’s report about the initial trial of INFUSE in the Journal of Spinal Disorders in 2002,” but that he “maintained that the risk of sterility linked to INFUSE wasn’t reported in journal articles because it wasn’t statistically significant.” (Id. ¶ 100.)
4. Required Financial Disclosures
In addition to these three statements, Plaintiffs also allege that Medtronic included material misstatements in its required financial disclosures. Plaintiffs allege that throughout the Class Period, Medtronic “frequently emphasized the Spine segment as an important revenue growth driver for [Medtronic] as a whole” and “knew that when the truth about INFUSE emerged, [Medtronic] would suffer material declines in sales.” (Id. ¶¶ 130-31.) Plaintiffs allege that Defendants:
violated SEC disclosure rules, notably Regulation S-K Item 303(a)(3)(ii) in the Management’s Discussion and Analysis (“MD & A”) section of [Medtronic]’s Class-Period financial statements by presenting a positive trend of increasing Spine segment and INFUSE (Biologies) revenue without any further disclosure that the reported results were in no way indicative of future results.
(Id. ¶ 132.) The parties do not focus their arguments on these allegations.
B. Allegations as to Falsity of Statements and Scienter
Plaintiffs allege that these above statements were materially and knowingly false and misleading for several reasons. First, they allege that Medtronic “did not ‘set the standard for quality in the industry’ and did not engage in well-planned studies showing the safety and efficacy of INFUSE or AMPLIFY,” but instead that Medtronic edited and influenced the research studies which intentionally omitted and understated the adverse effects of INFUSE. (Id. ¶ 87(a) (emphasis original).) Plaintiffs point to one instance in which consultant Defendant Burkus admitted that for a 2002 article he authored, he “could ‘take credit for only a small fraction of the work that ha[d] gone into this paper,’ ” because Medtronic employees had significant input. (Id. ¶ 87(a); see also id., Ex. D.) They point to another communication in which Burkus stated that his named co-authors on the study “did not write one word,” (see id., Ex. E), and allege that each of the early research articles was published without any indication that Med-tronic had been involved in editing or drafting the articles, (id. ¶ 87(a)). Plaintiffs proceed to list eleven articles which they claim Medtronic executives and employees participated in drafting or editing which failed to disclose adverse events known to or recklessly disregarded by Medtronic and the author physicians. (Id. ¶ 87(b).) Plaintiffs allege that Medtronic knew but failed to disclose that it had paid $210 million to physician authors who published these articles and that “such payments, and Medtronic’s involvement in the drafting and editing of these articles, were part of and/or advanced an undisclosed scheme to conceal or materially minimize adverse events” related to INFUSE. (Id. ¶ 87(c).) Plaintiffs further allege that the Defendants knew, but failed to disclose, Medtronic’s involvement in the research even when the government and media sought to investigate the relationship between Medtronic and researchers and “while purporting to cooperate with ... requests for information, were not in fact cooperating,” but instead continued to conceal that the initial medical reports were actually “a result of the undisclosed scheme.” (Id. ¶ 87(d).) Plaintiffs also allege that Medtronic failed to disclose that its revenue and profits in the spine unit had been driven “not by the safety and efficacy of the treatments, but by defendants’ fraudulent scheme and intentional concealment of the tr$e side effects of INFUSE” and that, further, the “potential approval and resulting sales growth of AMPLIFY was based upon the initial and continued concealment of the known adverse events and risks” associated with INFUSE. (Id. ¶ 87(e).)
According to Plaintiffs, Defendants also failed to disclose their knowledge that the clinical 'trials “were not designed to show [INFUSE]’s safety and efficacy, but to obscure and conceal known harmful side effects of INFUSE.” (Id. ¶ 87(f).) In this regard, Plaintiffs point to an email written in 2006 by Defendant Yahiro, claiming that it shows that Medtronic’s efforts to get the FDA to loosen rules governing the disclosure of adverse events were driven by a “desire to obscure adverse events associated with INFUSE and INFUSE-related products.” (Id. ¶ 87(f).) The email states:
Thanks for your note. I think we’re all on the same page regarding the ability to determine the exact cause of an event that could possibly be related to INFUSE (or just a result of cervical surgery). We agree it would be difficult to pin it on INFUSE, which is exactly why we wrote the stopping rule that way. What we don’t want is a rule that would have specific events with incidence rates, etc., that would stop the trial when it would be hard to say it WASN’T INFUSE.
The way we wrote it, WE make the determination whether it was INFUSE related. This way, if a patient has an AE like severe cervical swelling, we can honestly say that it is not possible to know that the cause is definitely INFUSE and therefore the study need not be stopped.
(Id. ¶ 87(f) (citing id., Ex. C at 17-18).) Plaintiffs claim that Yahiro is explaining that Medtronic’s proposal was written the way it was so that it would be difficult to “pin” the cause of an adverse event on INFUSE. (Id. ¶ 87(f).) Rather than being designed to elicit information about adverse events, Plaintiffs allege that the INFUSE clinical trials were biased in favor of INFUSE. (Id-¶ 87(g).) They point to two independent reviews of Medtronic’s study protocols in support of this argument, which they claim point to problems in the clinical studies, including that adverse events “were generally not actively elicited” and that it was not clear “whether investigators asked about specific symptoms” that would lead to accurate diagnoses of adverse events. (Id. ¶¶ 87(g)-(h).) As an example of the scheme to defraud, Plaintiffs allege that Defendants were aware in June 2004 that Medtronic employee Bearcroft advised Defendant Bur-kus to “not include any ‘significant detail’ on adverse events” in one of his reports and instead that it was “appropriate to simply report the adverse events were equivalent in the two groups without the detail.” (Id. ¶ 87(h) (citing id., Ex. Q.) According to Plaintiffs, it was later revealed that a table summarizing the adverse events was therefore removed. (Id. ¶ 87(h).)
Plaintiffs also allege that Defendants knew and failed to disclose that future sales growth of INFUSE depended on continued concealment of this scheme, given that, as early as 2004, Medtronic was receiving complaints about severe swelling in cases where INFUSE was used in the cervical spine and that Medtronic had begun to analyze any possible causal connection between INFUSE and swelling. (Id. ¶ 87(i).) Plaintiffs point to an email exchange between Medtronic employee Defendant Treharne and physician consultant Boden in which Plaintiffs claim, “Treharne tried to convince, Boden with an analysis that purported to show the lack of such causal relationship,” but that “Boden remained unconvinced:”
While statistically your numbers do not suggest an increased incidence, I think there is a possibility that could be a misleading conclusion.
At this point, the statistics do not prove anything one way or another, but I am still concerned that there could be an association between BMP-2 and edema in these cervical cases.... I think continued warning needs to be advised to surgeons about off-label use, especially in the cervical spine.
(Id. ¶87® (citing id., Ex. F).) When asked by the North American Spine Society in 2004 whether doctors should be cautioned against using INFUSE in the cervical spine, Boden stated that “it may be premature for an ‘official warning.’ ” (Id. ¶ 87(3)-)
C. Reports from The Spine Journal and Senate Committee
After The Spine Journal’s May 25, 2011 article linking INFUSE with retrograde ejaculation, and media coverage in Bloom-berg and the New York Times that Plaintiffs allege followed, (see id. ¶¶ 89-92), the United States Senate Finance Committee sent a letter request to Medtronic on June 21, 2011, in which it stated:
We are extremely troubled by press reports suggesting that doctors conducting clinical trials examining the safety and effectiveness of Infuse on behalf of Med-tronic were aware that Infuse, a treatment commonly used in spinal surgery, may cause medical complications, but failed to report this in the medical literature. This issue is compounded by the fact that some clinical investigators have substantial financial ties to Medtronic.
(Id. ¶ 101 (emphasis omitted).)
On June 28, 2011, The Spine Journal devoted an entire issue to the INFUSE concerns, which Plaintiffs allege, “[tjaken as a whole ... began to inform the market, for the first time, that the research supporting the safety and efficacy of INFUSE was not reliable.” (Id. ¶ 103.) Plaintiffs’ allegations detail the articles in the June 28, 2011 issue critiquing many of the earlier studies on INFUSE. In particular, the critique 'pomtecl out that for twelve of the thirteen initial studies, Med-tronic had “massive financial relationships with the doctors who authored the studies.” (Id. ¶ 106.) The critique also reported that documents indicated that Medtronic “edited draft publications to stress the pain patients experienced from undergoing a bone graft procedure instead of receiving INFUSE.” (Id. ¶ 107.)
Medtronic issued a press release on June 28, 2011 responding to the June edition of The Spine Journal, in which the then-CEO of Medtronic stated that The Spine Journal “articles raise questions about researchers’ conclusions in their published peer-reviewed literature, the articles do not raise questions about the data Medtronic submitted to the FDA in the approval process or the information available to physicians today through the instructions for use brochure attached to each product sold.” {Id. ¶ 109.)
Also on June 28, 2011, Medtronic filed its FY11 Form 10-K, which was signed by the then-CEO and Defendant Ellis and included a statement about The Spine Journal articles and “conceded that the articles would have an impact on future sales.” {Id. ¶ 112.) Plaintiffs allege that upon these disclosures, Medtronic’s stock dropped $.92 to close at $38.09 on June 29, 2011, which was a one-day decline of nearly 3%. {Id. ¶ 113.)
Plaintiffs allege that during this time, financial news analysis of the INFUSE situation predicted that INFUSE sales would drop significantly and posed risks to Medtronic’s financial health. {Id. ¶¶ 114— 15.) Plaintiffs allege that after the publication of these reports, Medtronic’s stock dropped further from $39.12 on July 1, 2011 to $37.96 on July 5, 2011. {Id. ¶ 116.)
D. The Yale Study and Senate Staff Report
On August 3, 2011, Medtronic announced that it was planning to publicly release INFUSE data to researchers at Yale to conduct a full review of studies of INFUSE. {Id. ¶ 117.) The resulting report issued in mid-2013 concluded that, compared with grafting, INFUSE did not improve pain or function and increased adverse events, possibly including cancer. {Id. ¶¶ 121-22.) After these reports, The Spine Journal published an article reacting to the reports and offering some final comments, including:
In some instances, it seems investigators with strong financial ties helped design a trial, and then acted as surgeons who monitored their own complications. To complete the circuit the same surgeon/investigator would co-author the paper and then submit the manuscript for review to ... well ... himself as chief or section editor of the journal.
It is ultimately disappointing that after 15 years of largely self-congratulatory research, we have only indirectly discovered BMP-2’s many potential complications. At present these ‘concerns’ regarding higher rates of cancer, sterility, wound problems and nerve injury remain poorly described. The suggested reason for this gap in our understanding, if true, is simply appalling: these complications were systematically ‘misrepresented,’ ‘underreported’ or just ‘missing’ from the first decade of publications.
{Id. ¶ 124.)
In addition to these reports, the U.S. Senate Finance Committee issued a staff report (“Senate Staff Report”), which made several findings, including, among others, that “Medtronic was heavily involved in drafting, editing, and shaping the content of medical journal articles authored by its physician consultants who received significant amounts of money through royalties and consulting fees from Medtronic.” {Id. ¶ 35.) For example, the Senate Staff Report stated that:
An e-mail exchange shows that a Med-tronic employee recommended against publishing a complete list of adverse events possibly associated with INFUSE in a 2005 Journal of Bone & Joint Surgery artiele[, and that]
Medtronic officials inserted language into studies that promoted INFUSE as a better technique than taking a bone graft from the pelvic bone (autograft technique) by emphasizing the pain of the autograft technique.
(Id. ¶ 125 (citing id., Ex. C at 2).) Plaintiffs characterize the report as finding that “Medtronic employees specifically crafted the content and the reporting format of the adverse events with the specific intent to conceal or at least obscure the true adverse events’ rate of incidence associated with INFUSE.” (Id. ¶ 127.) The Senate Staff Report also stated that:
Email exchanges between Dr. Burkus and Medtronic employee regarding a study of InFuse utilizing the posterior lumbar interbody fusion (PLIF) technique and published in The Spine Journal in 2004 demonstrates that Medtronic employees not only edited the draft manuscript to include comments supportive of InFuse, they also covertly participated in the peer-review process by drafting responses to peer-reviewers on behalf of the physician authors named on the paper.
(Id. ¶ 129 (citing id., Ex. C at 15-16).)
E. Loss Causation
Plaintiffs allege that “[t]he conduct alleged herein and the materially false and misleading statements made during the Class Period caused Medtronic’s common stock to trade at inflated prices as high as $43.20 per share during the Class Period— and operated as a fraud or deceit on investors in the Company’s common stock” and that once “the relevant truth was disclosed” about INFUSE, “Medtronic’s stock price suffered significant declines, as the artificial inflation came out of the stock price.” (Id. ¶¶ 138-39; see also id. ¶ 25.) For example, Plaintiffs explain that:
[0]n March 9, 2011, the Company filed a Form 10-Q which disclosed that the FDA had rejected its new INFUSE-related treatment AMPLIFY, and that the rejection had occurred in the third quarter of Medtronic’s fiscal 2011, well before the February 22, 2011 investor conference call during which defendants were asked about the status and potential delay of approval of AMPLIFY and defendants failed to disclose the fact the Company had already been rejected. While some analysts had built in the possibility of rejection in their models, some investors hoped it would be approved. This disclosure was a substantial cause of the Company’s stock price decline from $39.80 on March 9, 2011 to a close of $38.63 on March 10, 2011.
(Id. ¶ 140.) Plaintiffs also point to the events of May 25, 2011 (the initial journal reports), June 28, 2011 (the dedicated issue of The Spine Journal), July 5, 2011 (the analyst reports), and August 3, 2011 (Med-tronic’s public release to Yale), as events causing either continued artificially inflated prices or dropping of stock, causing economic losses to investors. (Id. ¶¶ 141— 45.) Plaintiffs allege that after the May 25, 2011 disclosures, Medtronic’s stock price dropped from a closing price of $40.88 on May 24, 2011 to $40.23 on May 25, 2011, but “remained artificially inflated due to continued misrepresentations and concealment of the true facts.” (Id. ¶ 29.) Plaintiffs allege that after the June 28, 2011 issue, Medtronic’s stock declined $.92 per share to close at $38.09, a “one-day decline of nearly 3% on volume of 10 million shares.” (Id. ¶ 33.)
IV. SCHEME LIABILITY
In addition to their material false statements allegations, Plaintiffs also allege in Count II that Defendants engaged in a scheme and course of conduct intended to deceive the investing public and enable Medtronic to artificially inflate the price of Medtronic’s stock, thus causing investors to purchase the stock at those artificially high prices. (See id. ¶ 163.) Plaintiffs allege that early INFUSE clinical studies “designed and sponsored by Medtronic revealed significant safety risks that would threaten Medtronic’s corporate goal of replacing ICBG as the standard of care,” and that because of this, Medtronic “embarked on a scheme with physician investigators and authors to conceal the significant safety risks from the public and physician community.” (Id. ¶ 15; see also id. ¶ 163.) Plaintiffs allege that Medtronic did so by “forg[ing] relationships, including financial relationships, with physician authors who published research articles in respected medical journals and knowingly concealed in those original articles, or omitted altogether, known facts regarding INFUSE’s adverse side effects observed in clinical trials,” and that these research articles “overstated apparent disadvantages of alternate bone graft procedures ... as opposed to treatment with INFUSE.” (Id. ¶ 16.) Plaintiffs also allege that Medtronic and the consulting physicians (Defendants. here) “knew but failed to disclose that Medtronic had paid millions of dollars to 'the same physician authors and that during the drafting process[] Medtronic employees heavily edited the articles and specifically excised true facts learned during clinical trials about the efficacy and side effects of INFUSE, which would have alerted the public and physicians using INFUSE about its harmful side effects.” (Id. ¶ 17.) Many of their allegations are based on facts revealed in the Senate Staff Report and the June issue of The Spine Journal, and Plaintiffs” allegations incorporate many of the specific examples of concerted manipulation described in the reports, discussed above.
V. CONTROL PERSON LIABILITY
Plaintiffs allege that the individual Med-tronic Defendants are “officers and controlling persons of a publicly-held company” and therefore “each had a duty to promptly disseminate accurate and truthful information regarding the Company’s financial condition, performance, growth, operations, financial statements, business, markets, management, earnings, present and future business prospects, and to correct any previously-issued statements that had become materially misleading” and that the Individual Defendants’ “material misrepresentations and omissions during' the Class Period violated these specific requirements and obligations.” (Id. ¶ 58.) Plaintiffs also allege that the Individual Defendants participated in drafting, preparing, and approving public shareholder reports and “were aware of,, or recklessly disregarded, the misstatements contained therein and omissions therefrom,” because the Individual Defendants each “had access to the adverse undisclosed information.” (Id. ¶ 59.) Plaintiffs similarly allege that the Individual Defendants each had control over the content of SEC filings and had the ability to correct misleading statements in those filings but did not, such that each of the Individual Defendants is “responsible for the accuracy of the public reports and releases” and “therefore primarily liable for the representations contained therein.” (Id. ¶ 61.)
VI. MOTION TO DISMISS
All Defendants move to dismiss. The Medtronic Defendants and Defendant Zde-blick argue that Count I fails to state a claim because none of the relevant statements could be plausibly understood to be false or misleading, that they would not have been material to investors, and that Plaintiffs fail to allege, with the requisite specificity, scienter and the other elements of a claim under Section 10(b). The Med-tronic Defendants argue that Count II for scheme liability is barred because it is based on the same underlying factual allegations as Count I, and the Consultant Defendants additionally argue that the claims against them are barred by the statute of limitations. Finally, Defendants argue that the defects with Plaintiffs’ claims under Counts I and II also doom Count III for control person liability, because such a claim is dependent upon the violations alleged in Counts I and II.
ANALYSIS
I. SECURITIES LAW AND STANDARD OF REVIEW
Section 10(b) of the Exchange Act makes it unlawful for “any person ... [t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” 15 U.S.C. § 78j(b). SEC Rule 10b-5 implements the provisions of section 10(b), Pub. Pension Fund Grp. v. KV Pharm. Co., 679 F.3d 972, 980 (8th Cir. 2012), which makes it unlawful to (a) “employ any device, scheme, or artifice to defraud,” (b) “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading,” or (c) “engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,” in connection with the purchase or sale of any security, 17 C.F.R. § 240.10b~5. Count I alleges violations under subsection 10b-5(b), for untrue statements of material fact. Count II alleges violations under subsections 10b-5(a) and (c) for a fraudulent scheme, act, or course of business. See 17 C.F.R. § 240.10b-5.
Both types of claims are subject to a heightened pleading standard, in addition to the pleading standards applicable to all federal civil actions. See McDonald v. Compellent Technologies, Inc., 805 F.Supp.2d 725, 732 (D.Minn.2011). A plaintiff bringing an action for false or misleading statements under Rule 10b-5(b) must “specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading[.]” 15 U.S.C. § 78u-4(b)(l). The “circumstances of the fraud must be stated with particularity, including such matters as the time, place and contents of false representations, ... [t]his means the who, what, when, where, and how.” In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 890 (8th Cir.2002) (internal quotations and citations omitted). “Although the heightened pleading requirements of the [Private Securities Litigation Reform Act] do not apply to claims under Rule 10b-5(a) and (c), such claims must be pleaded with specificity under” Federal Rule of Civil Procedure 9(b). KV Pharm. Co., 679 F.3d at 986. Thus, a plaintiff must “specify, with particularity, what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed and what effect the scheme had on the securities at issue.” Id.; see also Fed.R.Civ.P. 9(b) (“a party must state with .particularity the circumstances constituting fraud or mistake”).
Although the Court “assumes as true all factual allegations in the pleadings, interpreting them most favorably to the nonmoving party,” Magee v. Trustees of Hamline Unir., Minn., 747 F.3d 532, 534-35 (8th Cir.2014), allegations that the defendant acted with the required state of mind for a claim under Rule 10b-5(b) must, taken in théir entirety, “ ‘give rise to a strong inference of scienter,’ meaning that the inference ‘must be more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.’ ” Elam v. Neidorff, 544 F.3d 921, 928 (8th Cir.2008) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)); see also 15 U.S.C. § 78u-4(b)(2)(A).
II. FALSE AND MISLEADING STATEMENTS
Plaintiffs’1 first Count alleges that certain Medtronic Defendants and researcher Zdeblick made materially false statements in violation of Section 10(b) and Rule 10b5(b). This Count alleges, in essence, that these Defendants made several statements during the Class Period, when news outlets began to challenge the safety and efficacy of INFUSE, defending INFUSE' and the early clinical studies, when they knew that those early clinical studies downplayed the adverse events associated with INFUSE and manipulated the reports on the trials in order to- drive up sales. Specifically, this claim focuses on three categories of statements: (1) Statements in the 10-Q forms filed September 8, 2010, December 8, 2010, and March 9, 2011, stating that Medtronic’s studies were well-planned and showed the safety and efficacy of INFUSE, (2) Defendant Hawkins’ statements in the conference call with investors regarding ongoing work with the FDA on the approval of AMPLIFY that did not include mention of the non-approval letter Medtronic had recently received, and (3) statements by a Medtronic spokesperson and Defendant Zdeblick denying the statistically significant link between INFUSE and male infertility after the Spine Journal articles had come out suggesting that there was such a link. (See Am. Compl. ¶¶ 70-71, 78; id. ¶¶ 73-74, 79; id. ¶¶ 87, 96.)
There are six elements of a claim . for material false statements under Rule 10b5(b): (1) a material misrepresentation (or omission); (2) scienter, or intent to deceive, manipulate, or defraud; (3) a connection with the purchase or sale of a security; (4) reliance (sometimes referred to as “transaction causation”); (5) economic loss; and (6) “loss causation,” or a causal connection between the material misrepresentation and the loss. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005); see also In re Daou Sys., Inc. Sec. Litig., 411 F.3d 1006 (9th Cir.2005). Defendants challenge the first two elements—whether there was an actionable misrepresentation or omission and scienter—with regard to all of the allegedly false statements Plaintiffs raise. The Court will first outline the legal principals governing these two elements and will then consider the adequacy of Plaintiffs’ allegations of both contested elements with regard to each allegedly false statement.
A. Legal Standards
1. Material Misrepresentation or Omission
“To fulfill the materiality requirement there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” KV Pharm. Co., 679 F.3d at 981; see also Detroit Gen. Ret. Sys. v. Medtronic, Inc., 621 F.3d 800, 805 (8th Cir.2010).
“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” KV Pharm. Co., 679 F.3d at 984 (citing Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)). “A duty arises, however, if there have been inaccurate, incomplete or misleading disclosures.” Sailors v. N. States Power Co., 4 F.3d 610, 612 (8th Cir.1993). Therefore, “even absent a duty to speak, a party who discloses material facts in connection with securities transactions assume[s] a duty to speak fully and truthfully on those subjects.” Helwig v. Vencor, Inc., 251 F.3d 540, 561 (6th Cir.2001) (internal quotations and citation omitted). However, the requirement is not to dump all known information with every public announcement, but the law requires “an actor to provide complete and non-misleading information with respect to the subjects on which he undertakes to speak.” In re K-tel Int’l, 300 F.3d at 898. As the Supreme Court has recently explained, “[e]ven with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market,” Matrixx Initiatives, Inc. v. Siracusano, — U.S. -, 131 S.Ct. 1309, 1322, 179 L.Ed.2d 398 (2011), because where there is no duty to disclose, “[disclosure is required under these provisions only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading,” id. (alterations and internal quotations omitted).
“[Vjague, cautionary and such obvious puffing” statements upon which “no reasonable investor would have relied” are not actionable as false statements. In re K-tel Int’l, 300 F.3d at 898-99. For example, the Eighth Circuit has held that a statement that “it would be ‘very premature’ to announce anything more,” was “a cautionary note rendering the statement immaterial as a matter of law” and “not specific enough to perpetuate fraud on the market.” Id.
2. Scienter
In the Eighth Circuit, scienter refers to either severe recklessness or intentional wrongdoing, and it can be established with evidence of “highly unreasonable omissions or misrepresentations that present a danger of misleading buyers or sellers which is either known to the defendant, or is so obvious that the defendant must have been aware of it.” Freedman v. St. Jude Med., Inc., 4 F.Supp.3d 1101, 1121 (D.Minn.2014). “The inquiry ... is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” Minneapolis Firefighters’ Relief Ass’n v. MEMC Elec. Materials, Inc., 641 F.3d 1023, 1029 (8th Cir.2011) (quoting Tellabs, 551 U.S. at 322-23, 127 S.Ct. 2499). “[I]n determining whether the pleaded facts give rise to a ‘strong’ inference of scienter, the court must take into account plausible opposing inferences.” Id. (quoting Tellabs, 551 U.S. at 322-23, 127 S.Ct. 2499). Thus, “[a] complaint -will survive ... only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 324, 127 S.Ct. 2499.
The Eighth Circuit has observed that there are three traditional methods of establishing scienter: from facts demonstrating a mental state embracing intent to deceive, manipulate, or defraud; severe recklessness or “highly unreasonable omissions or misrepresentations involving an extreme departure from the standards of ordinary care, and presenting a danger of misleading buyers or sellers'which is either known to the defendant or is so obvious that the defendant must have been aware of it;” and allegations of motive and opportunity, which may “support a reason to believe the defendant’s misrepresentation was knowing or reckless.” In re K-tel Int'l, 300 F.3d at 893-94 (alterations and internal quotations omitted). “[E]vidence that the individual defendants abstained from trading may undercut allegations of motive.” Id. at 894; see also Minneapolis Firefighters’ Relief Ass’n, 641 F.3d at 1030.
B. Allegedly False Statements
1. Validity of Clinical Studies
Plaintiffs allege that the Medtronic Defendants made materially false statements in three 10-Q forms endorsing the validity of Medtronic’s clinical studies. Those three forms included similar versions of the statement that Medtronic “work[s] to improve patient access through well-planned studies which show the safety, efficacy, and cost-effectiveness of our therapies.” (Compl. ¶ 70; see also id. ¶¶ 71, 78.) Plaintiffs also point to Defendant Ellis’ statement in a conference call that Medtronic “set[s] high standards for quality in the industry.” (Id. ¶ 85.) Plaintiffs argue that these assertions were false because Medtronic had actually “consistently manipulated the designs and results of INFUSE clinical studies,” and had “covertly scrubbed” them to avoid reporting adverse events associated with INFUSE in the studies. (Pis.’ Mem. in Opp’n to Mot. to Dismiss at 5-6, Mar. 18, 2014, Docket No. 64.)
Defendants argue that these statements are not actionable as false or misleading under Rule 10b-5(b) because they are classic “puffing” statements or opinions which are not actionable. The Eighth Circuit has observed:
[S]ome statements are so vague and such obvious hyperbole that no reasonable investor would rely upon them. The role of the materiality requirement is not to attribute to investors a childlike simplicity but rather to determine whether a reasonable investor would have considered the omitted information significant at the time ... soft, puffing statements generally lack materiality because the market price of a share is not inflated by vague statements predicting growth. No reasonable investor would rely on these statements, and they are certainly not specific enough to perpetrate a fraud on the market.
In re Hutchinson Tech., Inc. Secs. Litig., 536 F.3d 952, 960-61 (8th Cir.2008) (alteration and internal quotations omitted). There, the court found that a CEO’s statement during an investors’ conference call that “[w]e believe we are well-positioned on a number of new disk drive programs that will be transitioning into volume production in the coming months,” was too vague to amount to a false statement for the purposes of a securities lawsuit. Id. at 960; see also In re St. Jude Med., Inc., Sec. Litig., 629 F.Supp.2d 915, 922 (D.Minn.2009) (holding statements that company was “ ‘well positioned’ to continue gathering market share,” expected “to continue gaining, market share going forward,” was “competitive” heading into new year “with nothing holding back [its] program,” or that it continued to “expect to see strong growth,” were non-actionable puffing statements because they “would not influence investor behavior”).
Plaintiffs counter that these statements are material and not puffery in light of the context in which Medtronic made them, particularly given the emphasis and weight that Medtronic had placed upon clinical studies as being the foundation of Medtronic’s competitive edge in the marketplace. They point to Hawkins’ statement that clinical evidence was “critical to Medtronic’s ... competitive differentiation in the marketplace” and the reason “we have gotten to where we are” to argue that such emphasis on clinical studies rendered the statements that they were “well-planned” reasonably material to investors. (See Pis.’ Mem. in Opp’n to Mot. to Dismiss at 7, 14 (citing Compl. ¶¶ 11-14); Compl. ¶ 12.) Plaintiffs are correct that “the line between mere' ‘puffery’ and an actionable misrepresentation often depends on the context of a statement,” and “even if some portions of individual statements might be toó vague and general to be actionable, particular statements by Defendants must be evaluated not only in their entirety, but also in context.” In re St. Jude Med., Inc. Sec. Litig., 836 F.Supp.2d 878, 888 (D.Minn.2011) (citing Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 597-98 (7th Cir.2006) (explaining that in context of responses to questions from analysts, statement “went well beyond puf-fery: it was a direct response to an analyst’s inquiry about a possible decline” in sales), vacated in part on other grounds, 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)).
The Court is not persuaded that the context here sufficiently pushes these statements beyond the realm of immaterial puffery. First, in observing that context matters, courts have typically found otherwise vague statements to be actionable when they were made in response to a specific inquiry'or question from an analyst or investor. See Makor, 437 F.3d at 597 (statement “went well beyond puffery” because “it was a direct response to an analyst’s inquiry,” and response to a frequently-asked question published in annual report was not puffery); In re St. Jude Med., Inc. Sec. Litig., 836 F.Supp.2d at 888 (determining investors would reasonably find statements to be material where “[m]any of the statements at issue were provided in direct response to questions from financial analysts at conferences held expressly to discuss STJ’s earnings and guidance”). This makes sense because, if an investor or analyst has asked a specific question, the inference that they (and others) would pay attention to the response is stronger than for unsolicited statements. The statements at issue here, though, were not made in response to a question, but rather were a small part of an extensive required filing, so any inference that investors paid attention to or relied on these statements is much weaker than if they were responsive to questions. Furthermore, nearly identical language was included in three required 10-Q forms, suggesting that investors might consider them to be immaterial boilerplate language.
Second, even if Medtronic’s clinical studies were responsible, in significant part, for the company’s success, and assuming that investors chose to invest in Medtronic on account of the strength of the studies, Plaintiffs have not plausibly alleged that investors’ confidence in the studies depended on these statements in the 10-Qs. The clinical studies which Plaintiffs allege secured Medtronic’s commercial success with INFUSE were published between 2005 and 2010, (see Compl. ¶ 10), suggesting that there were years of clinical studies upon which Medtronic hung its success before these statements were published. Without a convincing argument about how the context in which the statements were made rendered them reasonably likely to be material to investors, Medtronic’s statements that its clinical studies were “well-planned” are too vague for it to be plausible that investors would have considered such statements material.
The statements here are comparable to those in Freedman v. St Jude Medical, Inc., in which the court addressed the materiality of the following statements made during an investor conference call:
[o]ver the last few years we also have established ourselves as the industry leader for quality and reliability, with a proven track record of high quality product designs and performance. And what we are hearing back from our customers is that our ability to help them reduce risk for their patients really is becoming a key differentiator in the market place.
... [0]ur focus on reliability is tireless. This is the single most important thing we look at when we design technology. We have strict design rules. We are always looking to improve the technology, that’s the starting point, and I think the engineering team has come up with a best-in-class device here relative to all the things you want in an ICD.
4 F.Supp.3d 1101, 1112 (D.Minn.2014). The court observed that these statements were “transparently promotional and would not ‘have assumed actual significance in the deliberations of the reasonable shareholder’ ” and that “[t]hey are the sort of ‘vague, soft, puffing statements or obvious hyperbole’ on which no reasonable investor would rely in making a decision about buying or selling [the company’s] stock.” Id. at 1113 (quoting In re K-tel, 300 F.3d at 897).
The Court finds Medtronic’s statements regarding the reliability of its clinical studies to be similarly immaterial. The Court will therefore grant Defendants’ motion to dismiss with regard to these statements.
2. Omission of FDA Non-Approval Letter
Next, Plaintiffs allege that Defendant Hawkins’ response to a question during an investor conference call about whether the FDA might delay its approval of AMPLIFY and whether any delay might negatively impact INFUSE sales was materially misleading. They argue that by responding that, Medtronic “[is] continuing to work with the FDA to figure out kind of where they are on this,” Hawkins omitted the fact that Medtronic had recently received a letter of non-approval from the FDA “stating that AMPLIFY would not be approved,” and that the omission was material. (Compl. ¶ 74.)
There is no general duty to disclose under the securities laws. KV Pharm. Co., 679 F.3d at 984 (“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” (citing Basic, 485 U.S. at 239 n. 17, 108 S.Ct. 978)). However, some omissions can be actionable because, “even absent a duty to speak, a party who discloses material facts in connection with securities transactions assume[s] a duty to speak fully and truthfully on those subjects.” In re K-tel Int’l, 300 F.3d at 898 (emphasis added); see also KV Pharm. Co., 679 F.3d at 983 (“Having chosen to represent it was in material compliance with FDA regulations and cGMP, KV was obligated to make a full disclosure of any material facts,” because “a party with no duty to speak on a particular topic must nevertheless make a full disclosure when it chooses to speak”); see also Freedman, 4 F.Supp.3d at 1114 (“where the Defendants chose to speak on the company’s interactions with the FDA, they had a duty not to make inaccurate, incomplete or misleading disclosures”). Plaintiffs argue that Hawkins, having chosen to comment on Medtronic’s progress with the FDA on the approval of AMPLIFY, had a duty to make a full disclosure and should have disclosed Medtronic’s recent receipt of a non-approval letter.
Defendants do not dispute Plaintiffs’ assertion that Hawkins’ discussion of AMPLIFY’s status with the FDA invoked a duty to disclose material information about that process. Rather, Defendants argue that Plaintiffs “mischaracter[ized] ... the disclosure ... for the purpose of trying to create the impression of a misstatement,” claiming that the FDA notice to which Plaintiffs point as a material omission was not an outright rejection, but rather stated only that the FDA would not approve AMPLIFY at that time and requesting more information. (Medtronic Defs.’ Reply (“Medtronic Reply”) at 2, Apr. 18, 2014, Docket No. 69.) But the import of the FDA’s letter is a factual question which would be premature to resolve at this stage. Plaintiffs allege that the day Medtronic disclosed the FDA’s non-approval letter in the 10-Q, investment news outlets began issuing reports suggesting that the letter could put INFUSE sales at risk. (Compl. ¶¶ 80-81.) It is plausible that the FDA’s non-approval notice was enough of a negative indication of AMPLIFY’s prospective approval or enough of a setback that it would have been material to investors.
Defendants also argue that an omission about a product that would add only “incremental revenues to a product segment that never amounted to more than 5% of Medtronic’s overall revenues is simply not material as a matter of law.” (Medtronic Reply at 2 (citing In re Boston Scientific Corp. Sec. Litig., 686 F.3d 21, 29 (1st Cir.2012)).) But this argument confuses the focus of the materiality inquiry— whether a piece of information would be material to investors is not necessarily the same as whether the revenues to which the information relates would be material in comparison to the company’s overall revenue. Given Plaintiffs’ allegations that when Medtronic did disclose the FDA non-approval notice, its stock dropped by more than one dollar in a day, (see Compl. ¶¶ 82, 140), it is plausible that negative news from the FDA regarding AMPLIFY’s approval would be material to investors because it could have mistakenly led them to believe that AMPLIFY’s approval (which was never obtained) was on track. (See also id. ¶ 80 (detailing news reports from day of third quarter 2011 10-Q noting that “AMPLIFY Non-Approvable Letter Puts InFuse Sales At Risk”).) Cf. In re Sanofi-Aventis Sec. Litig., 774 F.Supp.2d 549, 564-65 (S.D.N.Y.2011) (holding that presentation in conference call informing investors of receipt of FDA approvable letter, in which FDA stated that “no additional trial in obesity has been requested,” was material omission where investor could have interpreted statement as meaning that “the FDA had made no other requests and/or that the approval process was on track without any major concerns” when FDA had concerns and had requested an independent formal assessment on one issue). The Court thus concludes that Plaintiffs have plausibly alleged that Hawkins’ statements to investors in the February 22, 2011 conference call about